A Blare Of Radio Mergers

Telecom reform sets off a frenzy of station-buying

Most nights, disk jockey Cousin Brucie does shtick and golden oldies for the New York region on WCBS-FM. By day, his alter ego, Bruce Morrow, gets his kicks on the other end of the microphone: Morrow is chairman of Multi-Market Radio Inc., an up-and-coming player in the new game of gobbling up radio properties. "I'm a lucky guy," he says. "I get to have fun on both sides of this business."

After years of taking a backseat to their TV brethren, radio-station owners suddenly find themselves with hot properties. Advertising rates and listener levels have been rising--along with stock-market values. But the real payoff came when restrictions were lifted on the numbers of stations a single company may own in one market. Now, consolidation is rampant: Just since Jan. 1, more than 80 radio stations have changed hands, for a total of nearly $2 billion (table).

HEFTY PRICES. The starting gun sounded as Congress was completing the telecommunications bill, which eliminated national ownership limits and allowed a company to own as many as eight stations in a market. Until then, the maximum was two AM and two FM stations, which kept buyers cautious and prices low. Now that buyers can sharply expand their reach, even the worst-performing stations command hefty prices. On Feb. 14, when Dallas' Chancellor Broadcasting Co. completed its $395 million purchase of Shamrock Broadcasting Inc.'s 17 faltering stations, it paid roughly 20 times cash flow--close to twice what healthy stations sold for a year earlier.

Station owners say even those prices are justified because consolidation helps them spread overhead costs around. Just adding a second station can cut 25% in costs the first year, figures chairman Robert F.X. Sillerman, whose SFX Broadcasting will grow to 51 stations in 15 markets after agreeing to pay $105.3 million to Prism Radio Partners for 16 more.

Owners also are eager to buy stations because it lets them offer advertisers a bigger share of listeners--at a higher price. Stations can offer "young kids with rock and roll, women with talk, all kinds of demographics," says Scott Ginsburg, chairman of Evergreen Media Corp., which owns 35 stations and has 27 in the top 10 markets. In January, his company closed a $306.5 million deal to buy 12 stations from Pyramid Communications Inc.

Even before the wave of consolidation began, ad rates were moving higher. Since 1992, increases have averaged 9% a year, according to industry analysts BIA Consulting in Chantilly, Va. But for operators who owned two stations in a single market, rates outstripped those of other stations by 10%, says analyst Jim Duncan of Duncan's American Radio Inc. "As those markets consolidate more, the numbers will go up," he says.

MIDSIZE-MARKET RUSH. Not everyone is happy about the changes, of course. "It's great. Just great," says a sarcastic Jon Mandel, senior vice-president and director for national broadcasting at Grey Advertising Inc. "Monopolies are against the law--unless the FCC is involved." Now, says Mandel, the numbers favor the suppliers of broadcast time. "This used to be a supply-and-demand game. Now, they're eating up the supply."

The buyouts likely will continue. Oppenheimer & Co. analyst Edward J. Atorino says companies have publicly raised more than $1 billion in the past year to go shopping. Already, radio has attracted big-time investors. Samuel Zell is a 70% owner of Jacor Communications Inc., which will control more stations than any other company after a pair of deals in February valued at $832 million. Dallas venture-capital firm Hicks Muse Equity Investment launched Chancellor in 1993 to buy stations in the largest markets. Chancellor, which owns 34 stations, just raised $200 million in an early-February initial public offering. Principal Tom Hicks says he will soon start a new company to buy stations in midsize markets.

The rush of fresh money will no doubt keep the sales coming--and the prices up. These days, even small and midsize markets like Tucson are starting to draw attention. And that suits Bruce Morrow just fine. His company, an associate of Sillerman's SFX, owns 24 stations in such midsize markets as Providence and Hartford, and it's looking to add more. Now that, says Cousin Brucie, sounds like real fun.

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